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Market update 22.01.23
Since Wednesday, I’ve been posting cautionary charts on twitter. I wanted to organize all those tweets and share them with you in this blog post. Let’s go.
IWM Weekly. Small-caps have broken decisively below a level they held for the past year. Below this line, we want to be very defensive.
On the ETF Leadership Board, many tickers dropped out of the leaders area. And with lots of fresh breakdowns, we could see more names piling up in the laggards area soon.
What’s interesting is that this week BTC fell into the laggards while PALL climbed out. I’ll come back to this point at the end of this post.
Let’s look at specific parts of the market in more detail now.
Small-cap, disruptive tech (software, biotech, cleantech) has been one of the weakest parts of the market for the past year. It’s no surprise that ARKK, XBI, and TAN were some of the worst performers this week, each down over 10%.
But now, there’s no place left to hide in growth land. On the Tech Leadership Board, there is no tech stock remaining in the leaders area other than DELL. Roughly half of the 80 stocks on this board are at or within 5% of 52-week lows.
This weekly chart for NFLX really sticks out.
After that failed breakout 2 weeks ago, selling intensified and NFLX closed -24% this past week. What a mess.
In my last blog post (Jan 9), we looked at the inflation trade. This was an area that had been doing well but it too is starting to crack.
Banks (KRE) and Value (BRK) have now erased that strong opening week of 2022. Mega-cap financials like BLK, GS, and MCO are breaking down on their weekly charts.
Last year, I did two separate blog posts showing uranium running into long-term resistance levels (Jun 12, Nov 9). Both occasions marked an interim top. And right now, XEG.TO (Canadian Oil ETF) is hitting long-term resistance as seen on the monthly chart below.
In addition, CVE.TO and IMO.TO (2 large Canadian oil stocks) are also facing decade+ resistance lines on their monthly charts.
URNM Weekly. Here’s uranium breaking down after a 6-fold move from the ‘20 lows.
The housing sector is also coming under pressure. XHB and XLRE were leading in Q4 but now both are showing failed breakouts on their weekly charts.
It’s interesting to note that the Baltic Dry Index has tended to peak ahead of stocks. And it’s been falling hard after peaking in early Oct.
This is a similar picture to the divergences we’ve been seeing for many months between SPX and breadth, IWM, EEM, etc.
Feb ’21 was the peak of the market’s speculative frenzy. SPACs, fuel cells, weed stocks, meme stocks, and crypto miners would gain over 20% each day leading up to the peak.
The unwind has been a staggered process.
SPACs and weed sold off quickly after the Feb ’21 peak. They have been the worst performers over the past year, with MJ down >70% from its peak.
Meme stocks (GME, AMC) kept defying gravity for most of last year and it wasn’t until Nov that they finally cracked.
In crypto, the craze continued past February with laser eyes in March, NFTs and DOGE mania in the summer, followed by the SHIB runup in the fall. BTC and ETH peaked in Nov but many smaller coins kept making new highs until just very recently.
Now, many coins are entering Stage 4 breakdowns after rallying >50X. Here’s XMR weekly.
See also SOL, UNI and MATIC weekly charts for more examples.
Bitcoin’s failed breakout in Nov was a big tell.
Given the fresh breakdowns in crypto (and the broader market), BTC likely breaches its 30,000 support level.
Is there anything that does well during corrections?
The past 3 market corrections tell us that gold is a crisis asset while bitcoin is a high-beta asset.
I also wrote a blog post looking at all this on a very long timeframe (May 3).
In the last blog post of ‘21, I shared the gold quarterly chart below. It’s showing gold lifting up from a 10-year base. In addition, commercial hedgers continue to be record long palladium and very long platinum.
Finally, I want to share this SPX:GLD ratio chart (6-month bars). Is this 60-year resistance going to matter?
In the past couple years, risk assets had a phenomenal run. But now, many parts of the market are making fresh breakdowns and entering Stage 4. This is not the time to be buying the dip.
During heightened market volatility, gold tends to act well. Since exiting my gold trade in Nov, I continue to monitor this sector for breakouts before going long again.
As always, you can find my work in real-time here: @alphacharts. Thanks for reading.
Important Disclaimer: This blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.